Medical Device Link.

Originally Published MX September/October 2002

GOVERNMENTAL & LEGAL AFFAIRS

Strategizing for Reimbursement

According to the experts, starting early and staying involved are two keys to building a successful reimbursement strategy.

Moderated by Steve Halasey

To find out more about how the Medicare system is changing—and how medtech companies can develop the best possible strategies for reimbursement—MX spoke with six experts in the field (see sidebar).

MX: After the passage of the FDA Modernization Act of 1997, many medtech manufacturers turned their attention to the Medicare reimbursement system and determined that it was a broken system that needed to be fixed. Is that still the mood of industry, or how has industry's mood changed?

Ted R. Mannen: I think the mood of the industry is a little more matter-of-fact than it was five years ago. When diagnosis-related groups (DRGs) first came into the system, about 20 years ago, then there was really visceral concern about reimbursement in general.

But now reimbursement is increasingly integrated into the managerial systems of at least some device companies, particularly the larger ones. Reimbursement is increasingly viewed as an area to be managed, like many others. That's not to say that companies don't face very tough reimbursement challenges; simply that the existence and magnitude of the challenges are more fully appreciated than they were five years ago—or certainly 20 years ago.

Robin Bostic: That's probably true for large companies. But for some of the start-ups and mid-sized companies, there's still frustration and bewilderment about what the rules are. Once they've received FDA approval, they can't understand what the obstacle to reimbursement is. That kind of naiveté still exists in those types of organizations.

Jo Ellen F. Slurzberg: Many small companies—particularly start-ups—are very confused about the process for achieving activities related to reimbursement. They don't have a good perspective on how to weigh coverage, coding, payment, and health economics. For small companies, there is still a "before and after" mindset, whereas larger companies now consider reimbursement activities, and working with CMS, as part of their product development cycle.

Grant P. Bagley: There are some interesting new dynamics in this mix. It's true that the device industry has, over time, developed an understanding of the process. Pharmaceuticals have not traditionally entered into this picture, but they're beginning to, through the development of new cancer drugs. And because they are becoming higher priced—and there may be new benefits approved for them—we've got a whole new bunch of players who are oftentimes very unsophisticated with regard to the Medicare system. Large pharma companies are starting to have to deal with the same things that the device industry has, and I think that creates a new dynamic.

Aubrey A. Rothrock III: When small companies get involved in this process, they realize very quickly that they need some outside help. But I would not underestimate the importance of CMS coming out with specific time frames. Before that, it was very difficult to determine when a company would get feedback from the agency, or to map out an application process from beginning to end.

Sources of Change

What are the sources of the policy-changing initiatives that are going on right now? Congress and the agency are obviously involved. Is industry pushing either of those and, if so, how?

Slurzberg: There are a couple of things going on in industry that may prove advantageous or disadvantageous, depending on whether a company's product is likely to have a major impact on the Medicare program.

It's important for a manufacturer to know the degree to which its product is going to affect the Medicare system and its patients, so that it can determine the extent to which utilization of its device will be driven by Medicare versus private payers. Companies need to know early on whether their device is one that fits into an established standard of care or falls into a group where there is no coverage, coding, or payment structure.

Mannen: Over the years, FDA statutory changes have been very few and far between. By contrast, the Medicare statute is almost perennially amended.

This characteristic has special importance for any company that is attempting to plan for Medicare coverage in connection with a product launch—and maybe even greater importance for actual payment than for coverage. Companies have to take into account the special Congressional interest in Medicare that's been demonstrated in the recent past.

Bagley: Although CMS's processes are evolving, they still have a long way to go. One of the preeminent problems is that one process—the coverage process—deals with scientific evidence about how procedures are performed and how devices are used, but two entirely distinct processes deal with other parts of the reimbursement system. The coding process deals with how items and services are described in terms of codes; and the payment process deals with how they're paid for, in terms of dollars or dollar surrogates. In reality, these processes constitute three separate and independent coverage processes. And I don't see an immediate solution to having all three.

Bostic: A lot of companies really don't understand that reimbursement is the ability to be paid—an outcome that requires successful completion of the coverage, coding, and payment processes. Many times I've heard salespeople say, "Well, let's just get the code," not realizing that getting a code is no guarantee of payment. It is possible for a company to get a code that means it won't get paid! So, companies need to be aware that there are three aspects to reimbursement.

Successful Approaches

Are there particular approaches to reimbursement that are proving successful?

Rothrock: Yes. Many of the companies I've worked with have an idea of what the appropriate patient universe should be when they go into an application process. And my counsel has always been to develop the data that is most convincing for the most-solid patient universe, and then go from there.

After an initial coverage determination is made for a specific class of beneficiaries, that coverage can be expanded as new evidence is developed.

Bagley: The flip side to that—which is not the way to go—is when a company gathers some minimal level of clinical data and then decides to seek early reimbursement. And then, when the agency asks whether anyone is using the technology, the answer is "No, because you don't pay for it." That's a formula for failure. Companies need to develop clinical support before they start seeking reimbursement.

John J. Whyte: Many device companies have products approved through the premarket notification (510(k)) process, and they may not necessarily have a lot of data to support an indication that the Medicare program would pay for. So, to support a coverage decision, the Medicare program then has to request additional data that the manufacturer didn't necessarily need for FDA approval or clearance. A lot of problems arise from instances like that.

Bostic: It's important for product development personnel to understand the reimbursement perspective before they get to the point of conducting FDA clinical trials. If the company intends to sell its products to Medicare, then it must include Medicare patients in its study population.

Working the System

How do such data requirements change the nature of clinical trials or the investment that companies have to put into doing outcomes research and clinical research?

Slurzberg: It is critical that companies not look at reimbursement or activities related to reimbursement in a vacuum. In the past, companies tended to segregate these activities, and there was a very hard line between what they did for FDA approval and what they did to gain reimbursement. That approach just cannot exist anymore. The product development cycle has to include reimbursement.

Whyte: Companies need to be thinking about all of this up front when they're developing their products, not as an afterthought. Companies shouldn't be asking CMS, as they often do, "We have a CPT code; why aren't we getting paid?" It becomes very difficult to explain to such companies that they also need to have some data to demonstrate that their products actually work.

Does the pressure to consider all of these issues earlier and earlier in the product development cycle put small companies at a significant disadvantage? They typically don't have the in-house expertise to deal with so many issues at once.

Bostic: Companies that recognize that the reimbursement process should be initiated at the same time as the FDA process can achieve what they need to. It's really a change of mindset. Development staff need to understand that the reimbursement process has to be run at the same time as the FDA process.

Whyte: Many companies don't even know enough to find someone experienced in biostatistics—someone who can tell them how to perform a well-designed trial to find the information that they need. There is a fear that any type of well-designed study is going to cost a million dollars, and that's not always true.

Reform Proposals

There are a lot of reimbursement-related reform proposals going through Congress now, including competitive bidding, prescription drug payment, and local-carrier reform. What are the advantages and disadvantages to some of these proposals, and what effects are they likely to have on the system over the next couple of years?

Mannen: One proposal that's high on my watch list is competitive bidding. If enacted, it would represent a fairly dramatic change in Medicare Part B. And the companies with products that would be affected—and not all products would be—have serious concerns.

The competitive-bidding proposal grew out of a provision in the Balanced Budget Act of 1997 (BBA) that set up demonstration projects. But CMS's own report on those demonstration projects says that it would be premature to take competitive bidding to a national level.

Nevertheless, it is just such a national system that would be put in place under a bill recently passed by the House of Representatives. So, I think competitive bidding is a very important issue and a very serious one for many companies.

Slurzberg: One concern for companies that fall into the durable medical equipment (DME) or diagnostics areas is that the market long ago reacted to the likelihood that the competitive-bidding demonstration project would be implemented. Consequently, a lot of the market changes expected to result from competitive bidding have already taken place. Under these circumstances, it is certainly reasonable to question whether the implementation of competitive bidding now would really bring about the savings that its proponents expect.

Issues such as this are the reason that companies must have a Washington watch. They need to be aware of what is going on.

Is there a potential for competitive bidding to affect the nature of the marketplace, in terms of whether companies survive or not?

Mannen: I think so. Under the provisions that are in play now, some suppliers, and the products they carry, could effectively be excluded from Medicare in certain regions.

That's more serious than suffering a payment cut. So, the consequences—including effective market exclusion—could definitely be serious for some companies.

Conclusion

What do you view as the future of policy initiatives in this area in the foreseeable future? Are there issues that are likely to remain unresolved? What can medtech executives do to help shape those policies?

Mannen: In the past couple of years there has been considerable attention devoted to the outpatient prospective payment system, and appropriately so. But I think some of the inpatient DRG issues are also very important. There are a number of very important technologies—such as the new drug-eluting stents—that are used almost exclusively in inpatient settings.

Slurzberg: One thing that manufacturers should watch for is the reform of provider and hospital payments, which is likely to be dealt with in legislation this year. Companies may believe that this is not really a manufacturer issue, but manufacturers do need to be cognizant that this is a key issue that could affect them. In the past, provider payment issues have in some cases pitted manufacturers against their customers, particularly when they related to add-on payments for new technologies under the prospective payment systems.

Rothrock: Senior executives of medium-sized and large companies are often hesitant to view their presence in Washington as a worthwhile investment—even though it's in their best interest to do so. But, in my experience, those who are willing to take the time to come to Washington and meet with those who are making the decisions tend to fare much better.

So, I would suggest that companies view their Washington presence as an investment—and not just a place that they have to pay attention to when they have a particular problem. Working with the agencies in Washington requires a long-term commitment.

Bostic: That's exactly what I have found as well. Companies that truly want to influence policy need to invest in having a Washington presence.
In terms of issues that will remain to be addressed, I think that prescription drug coverage is unlikely to happen this fall. But we will definitely see some legislation on pricing for drugs. Similarly, I don't think DME competitive bidding will be initiated this fall either, but the issue will come back.

Bagley: In the next year, I think we're going to see the Medicare beneficiary emerging as an active force. In past debates, by and large, Medicare beneficiaries have been absent. Now, I think, Medicare beneficiaries are going to stand up and demand that some things be paid for. And perhaps—here's an even wilder idea—Medicare beneficiaries may even organize to insist that some things that offer no clinical benefit should not be paid for.

Whyte: It's worth emphasizing that the processes for reimbursement coverage are meant to be open and inclusive. These processes continue to evolve, however, so the best approach for keeping up with current trends is for people to become involved—whether they are beneficiaries, physicians, or device manufacturers.

Copyright ©2002 MX